Market Watch

Alan Brugler is the President of Brugler Marketing & Management, and the primary analyst and advisor.

Where Is That Bottle Rocket?

Jul 01, 2011

Market Watch with Alan Brugler

July 1, 2011

Where Did I Put That Bottle Rocket?

As we head into the July 4thweekend, the corn and wheat markets look like they are in need of a booster rocket. They have clearly lost their bullish momentum since the Russians announced that they were getting back into the export market. Actually, today was supposed to be the first day Russian wheat was to be available. Maybe we can strap a few leftover bottle rockets or Roman candles to the charts and get these things turned around. Of course, if you are cattle or hog feeder, you like this reprieve on the feed costs and might want to have a bucket of water close by.

Corn futures dropped 29 cents per bushel for the week, after a 30 cent loss and an 87 cent loss in the previous two weeks. That is some serious selling! Much of this was just plain old liquidation of long positions ahead of July deliveries. There were more than 500 thousand contracts open in July at the beginning of June, and that’s 2.5 billion bushels of corn. Registered receipts were less than 500 contracts, i.e. corn available to deliver against July futures. The short squeeze potential was there, but exchange rules require non-commercials to downsize to 600 contracts apiece by FND. Thus, the big sell off. Now that the only ones still in the pool are commercials and bullish funds, we’ll see if the shorts can come up with corn to deliver. There were zero deliveries on Friday.

The corn sell off did get a fundamental kicker on Thursday, as USDA showed 3.67 billion bushels of corn were still sitting around on June 1. That was below the 4.3 billion from last year, but definitely more than the trade expected. USDA will have to cut the Feed & Residual use or the Ethanol use categories in the July WASDE report to show who didn’t use the corn that they found! The June 1 planted acreage number was also bearish, larger than the March Intentions for the 8th time in 9 years. There are still questions about the USDA numbers, particularly the harvested acres figure. It didn’t appear to take into account the widespread flooding in ND/SD/NE/IA and MO. That ground would be in the planted acres number, but will be a lake until August or September.

Soybeans were up 2 cents for the week. China showed some interest in buying US beans again, despite rolling other purchases into the new crop time slots. USDA showed 619 million bushels of beans in the Grain Stocks report, which was 27 million more than the average trade estimate and suggests that August 31 ending stocks could be close to 200 million bushels. The soybean acreage number was bullish for beans at only 75.2 million. Producers went for extra corn ground in areas that could get it planted, leaving beans a little shy of the March intentions.USDA does see an increase in double crop beans this year vs. year ago. The beans after wheat combo actually comes the closest to matching the revenue per acre from corn.

Wheat continued to show all the characteristics of a bear market, dropping hard on bearish news and pretty much ignoring bullish items. Chicago was down 8% for the week. KC was down 6%. Minneapolis spring wheat managed a 5 cent or 0.61% gain. All of it came on Friday. USDA on Monday showed 5% of the crop still wasn’t planted. On Thursday, USDA showed that at least 800,000 acres from the March intentions would NOT be planted, with durum acres on top of that. In fact, All Wheat planted acreage was reduced to 56.4 million acres.

Cotton futures were down 2.3% for the week. USDA found more cotton acres, including all of those the trade had expected to find in March and that didn’t show in the Intentions report. The new USDA estimate is 13.725million. So, we have a rise in potential US production at the same time we’re still seeing negative weekly export sales totals due to cancellations of prior contracts. Not so fast! USDA didn’t projected harvested acres for cotton, and there are indications that 20-40% of the Texas crop will be abandoned because it has not survived the drought. That translates to smaller harvested acreage in the largest US production state.

Here are the Friday night closes for the past four weeks, along with the net change for this week vs. the previous week:

Commodity

Weekly

Weekly

Month

06/10/11

06/17/11

06/24/11

07/01/11

Change

% Change

July

Corn

7.87

7.0025

6.7

6.4075

0.2925

4.37%

July

CBOT Wheat

7.5925

6.7225

6.3575

5.845

0.5125

8.06%

July

KCBT Wheat

8.68

8.045

7.485

7.03

0.4550

6.08%

July

MGEX Wheat

10

8.9725

8.26

8.31

0.0500

0.61%

July

Soybeans

13.8725

13.33

13.2025

13.2225

0.0200

0.15%

July

Soybean Meal

373.3

349

339.9

340.9

1.0000

0.29%

July

Soybean Oil

56.85

55.92

55.22

55.16

0.0600

0.11%

Aug

Live Cattle

103.475

110.2

113.5

112.85

0.6500

0.57%

Aug

Feeder Cattle

123.625

132.65

138.6

140.475

1.8750

1.35%

July

Lean Hogs

93.225

95.65

96

95.5

0.5000

0.52%

July

Cotton

150.03

145.18

165.22

161.41

3.8100

2.31%

July

Oats

3.955

3.515

3.355

3.395

0.0400

1.19%

July

Rice

14.895

13.965

13.45

13.99

0.5400

4.01%

Cattle futures were down 65 cents for the week. Cash cattle trade was slow to develop and fairly limited, with many packers dark on Monday and holding supplies of contract cattle that they can draw on at the beginning of the month. Texas trade appeared to be mostly $.50 to $1.00 higher, while Kansas was about steady with a week ago. Wholesale prices were mixed for the week, with Choice boxed beef up 0.2% for the week while the lower graded Select beef was down 0.7%.

Lean Hogs retreated 50 cents per hundred in the nearby July contract, which will expire in a couple weeks. July is still at a considerable discount of $7.11 to the CME Lean Hog Index, betting that cash hog prices will decline over the next two weeks. Either that or the weakness in futures is merely because of spec fund liquidation and not yet focused on the real world values at expiration. Cash hog prices were very erratic, depending on packer holiday schedules, heat and other variables. The pork carcass cutout value reached an all time record high on Monday. However, carcass cutout values were down 2.55% for the week on a Friday/Friday comparison. Pork production for the year is running 1% ahead of 2010.

Market Watch: The trade (and the industry) gets a break on Monday for the Independence Day holiday in the United States. All markets are closed. The delays USDA Monday reports to Tuesday, including Crop Progress and Export Inspections. Thursday will be the last trading day for July cotton futures.On Friday, we’ll get weekly USDA Export Sales, and a few macro reports like unemployment. By Friday, attention will be shifting to the monthly USDA Supply & Demand estimates to be released on the 12th.

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